|Married couples can sometimes find estate planning via a revocable living trust to be complicated. It often involves establishing two trusts and separating jointly-owned assets so that the intended planning for the couple’s assets can take effect regardless of which spouse dies first. Another goal of separating assets is equalizing the value of each spouse’s estate so that both spouses can minimize estate taxes regardless of who dies first. For couples in long-term first marriages, this can be a frustrating and unintuitive process. They think, “We own everything jointly, why are we splitting it all up?” |
Further complications arise when there are assets that simply cannot be split. This includes IRAs and other retirement accounts that can only be owned by one person during their life. There are also assets that one spouse may own separately, like a cabin with their siblings or a business with partners. These assets are hard to split and equalize in an estate planning scenario with a separate trust for each spouse.
That’s why more and more often, our firm is directing spouses to consider a joint revocable trust. A joint trust can function very similarly to separate trusts. You still get the benefit of avoiding the costly and public probate process through the court, and you still can maintain control of assets after your death. A joint trust offers these unique advantages as well:
1) It’s more reflective of how a couple usually owns assets. Owning a house as tenants in common or splitting up banking and investment accounts is a laborious process, and creates headaches in actually using those split-up assets. A joint trust has the assets inside one trust, with both spouses being trustees and having access to the assets.
2) It doesn’t require estate equalization. Typically, if a couple wanted to make sure that they could use each of their entire Minnesota Estate Tax Exemptions of $3 million (thereby sheltering $6 million from estate tax as a couple), they would need to put at least $3 million in EACH of their revocable trusts. However, by including language in a joint trust that gives the first spouse to die a power of appointment, we can utilize as much of the first spouse to die’s estate tax exemption as possible, regardless of which spouse contributed the assets to the joint trust. Thus, we only need to put $3 million into the joint trust to fully utilize the first spouse to die’s estate tax exemption. This can come in handy in those situations where assets cannot be split (large retirement accounts, small businesses) and must pass outside of a trust.
This is a somewhat byzantine explanation of the simple concept: joint trusts are usually easier to setup and administer than separate trusts. We have often found that that the simplicity of an estate plan correlates with its long-term success.